Capital Gains Tax On Property When Selling

What is Capital Gains Tax (CGT) in the UK?

Capital Gains Tax (CGT) is a tax you may need to pay when you sell or dispose of a property or asset for a profit. In property sales, this typically applies to second homes or buy-to-let properties and not your main residence, which is usually exempt.

The tax is calculated on the profit (or gain) made and not the full sale price. If your gain exceeds the tax-free allowance set by HMRC, CGT will be due.

When and How Is CGT Paid?

• CGT must be reported and paid within 60 days of the property’s disposal (usually the date contracts are exchanged).
• Unlike income tax, CGT is not deducted automatically, it’s your responsibility to report and pay it via HMRC.
• Penalties apply if you miss the 60-day deadline.

Capital Gains Tax Calculation: How Much is Capital Gains Tax on Property?

The profit gained is what determines the amount of Capital Gains Tax to be paid rather than the total amount of money that was transferred. For example, if you sell a property for £200,000 and you had originally paid £150,000, then you would pay Capital Gains Tax based on the £50,000.

The rate you pay for Capital Gains Tax is split depending on several factors – including the rate of income tax you pay. As of April 2025, the rates for CGT in the UK were:

Higher rate Income Tax payees: 24% on your gains from residential property

Basic rate Income Tax payees: 18% on your gains from residential property

More information is available on the government website to help you work out the amount you’d owe.

How Capital Gains Tax Affects Different Properties

Capital Gains Tax (CGT) is not applied equally across all types of property. Whether you are selling your main home, an inherited property, or one based overseas, the tax rules can vary. Here’s how CGT may affect different types of property sales.

Capital gains on residential property

If you sell a property that is not your main residence, you may need to pay Capital Gains Tax on any profit made from the sale. This includes buy-to-let properties, second homes and holiday homes.

Your main residence is usually exempt from CGT, thanks to Private Residence Relief, but this exemption only applies if the property was your only or primary home throughout the time you owned it.

For other residential properties, as of 2025 basic-rate taxpayers pay CGT at 18%, while higher- and additional-rate taxpayers pay 28% on gains above the annual tax-free allowance.

Capital Gains Tax on inherited property and gifted property

If you inherit a property, you do not pay CGT at the time of inheritance. However, if you later sell the property and it has increased in value since the date of inheritance, CGT may be due on the gain.

For gifted properties, the situation depends on who the gift is made to. If you gift a property to anyone other than a spouse or civil partner, HMRC treats it as if you had sold it at market value, and CGT may apply even if no money changes hands.

Gifting property to a spouse or civil partner does not trigger CGT at the time of transfer, but it may affect how CGT is calculated if the recipient sells the property later.

Capital gains on second home or property

A second home is not exempt from CGT. If you sell a second property that you do not live in full-time, you will need to pay CGT on the profit, subject to the annual tax-free allowance.

If you have lived in both your main home and a second home at different times, you may be able to claim Private Residence Relief for the period you lived in the second property, as well as lettings relief in some cases.

Keeping clear records of occupancy, rental income and capital improvements can help reduce your CGT liability.

Capital gains tax on a non-UK property

If you are a UK resident, you are liable to pay CGT on the sale of overseas properties. This applies to worldwide assets, not just those based in the UK.

You will need to convert the purchase and sale price into pounds sterling, using the official HMRC exchange rate, and calculate your gain in the usual way. You may be able to claim Foreign Tax Credit Relief if you also paid tax in the country where the property is located.

If you are non-resident in the UK, you may still need to pay CGT on UK property sales. HMRC rules changed in recent years to include more types of non-resident disposals.

CGT following divorce

If you transfer a property to your spouse or civil partner before the end of the tax year in which you separate, no CGT is due. This is known as a no gain, no loss transfer.

However, transfers made after the tax year of separation may be subject to CGT, depending on the value of the property at the time. In April 2023, new rules were introduced that extend the no gain, no loss window for separating couples to three years after the tax year they separate, or indefinitely if the asset is part of a formal divorce settlement.

Professional tax advice is recommended to ensure accurate calculations and to avoid unexpected liabilities during separation or divorce proceedings.

What is the 7-year Rule for Capital Gains Tax?

Although a common misconception, the 7-year rule relates to Inheritance Tax (IHT), not Capital Gains Tax. It applies when you give a property or financial gift to someone during your lifetime.

If you gift a property and die within seven years, the value of the gift may be subject to Inheritance Tax. If you survive for more than seven years after giving the gift, no Inheritance Tax is due on it – regardless of the value.

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